Big investors back Labor on carbon

A carbon price will have a minimal impact on company earnings and investment will be lost offshore without it, the chief executives of ­Australia’s largest investment managers and superannuation funds say.

In a climate-change round table organised by The Australian Financial Review and the Investor Group on Climate Change, the six chief executives indicated they backed Labor’s plans for an ­emissions trading scheme. They voiced concern, however, that uncertainty over carbon pricing was already causing Australia to miss out on investment.

On the eve of the government’s business group meeting on the carbon scheme in Canberra today, the investment heavyweights called for more detail on the starting price. They also wanted detail on compensation for industry and consumers, and how the scheme would link with overseas ­counterparts.

“Tell us the rules of the game so we can make investment decisions," BT Investment Management chief executive Emilio Gonzalez said.

But members of the round table – the heads of Colonial First State, AMP Capital Investors, BT Investment Management, Cbus, Australian Super and Hesta, with a combined $300 billion in funds under management – rebuffed claims from major emitters that a carbon tax would leave them unable to compete with overseas rivals and threaten their viability.

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The cut to companies’ profits would be “on average 2 per cent and we don’t expect any one company to have greater than a 5 per cent impact", said AMP Capital Investors chief executive
Stephen Dunne
. This assessment was based on business and consumers receiving compensation. The comments came as two of Australia’s largest miners, Anglo American and
Rio Tinto
, urged the government to delay the carbon tax to allow new technology to be developed to capture the methane gas released by coalmining.

Anglo chief executive Cynthia ­Carroll met Prime Minister
Julia Gillard
yesterday to discuss a deal that would give big miners time to develop alternative ways to deal with emission ­targets. Commenting generally on companies’ claims about the impact of the carbon tax, HESTA chief executive
Anne-Marie Corboy
said some claims were a “bit of positioning".

“Obviously you are going to have some reductions in some areas but there are going to be jobs opened up in other areas," Ms Corboy said.

Labor said earlier this year that the government would introduce a carbon tax from July 2012, before moving to a full carbon trading scheme three to five years later. But the initial carbon price and how much compensation households and industry would receive is still to be negotiated with the Greens and the independents. The investment leaders strongly endorsed the plans, despite Ms ­Gillard’s promise before the last election not to have a carbon tax. Opposition Leader
Tony Abbott
’s pledge to repeal any carbon price if he won the next federal election also came under sharp criticism.

“I think that would be pushing Australia to laggard status in relation to the world, not actually moving forward on recognising that we need to take action in relation to mitigation and also adaption in terms of dealing with our emissions issue, which is a global issue," AMP Capital Investors’ Mr Dunne said. “We want to show our strong support for progress in terms of giving us certainty in relation to the price not only for next year, but for the next 20 years."

Mr Gonzalez said the danger was that a carbon price was looked at simply as a tax, which was negative.

“There may be opportunities where new industry will flourish to take advantage of the new pricing mechanisms," he said. “So it’s not all about the potential downside but also potential opportunities."

Australian Super chief executive
Ian Silk
said carbon pricing could change asset allocations, with the fund already undertaking a wide-ranging assessment of the impact of climate change on its investment portfolio across different asset classes.

“When the outcomes of that are known, that will guide us in future asset allocation decisions," Mr Silk said. Some companies were likely to accommodate the introduction of carbon pricing better than others, Colonial First State CEO Mark ­Lazberger said. “As a good investor, we want to identify those companies that are best able to sort of accommodate those changes," he said.

But Colonial First State, Australian Super, HESTA and Cbus all agreed that investment opportunities were being missed in Australia due to the uncertainty on ­carbon ­pricing.

“We see more investment opportunities coming across our desk to invest in infrastructure opportunities in Europe where you’ve got a stronger political and regulatory environment or renewable energy than we see here," Mr Dunne said. “Opportunities are being missed because capital is being diverted to where it could be put to work. It goes back to the issue around uncertainty does have a cost, and the cost is both a direct cost and an indirect cost."

Investment was particularly lacking in the area of new technology and other climate-sensitive asset classes.

“Uncertainty breeds caution and at the margin a caution to invest, which is not a good issue for the industry but, more importantly, not a good issue for the economy," Mr Silk said.

“In areas like infrastructure, property, private equity, the level of uncertainty is heightened and we know from speaking with asset owners and potential investors that this is an issue that is at the forefront of their minds when they’re looking to make investments, and the fact that there is no clear price signal is introducing a greater degree of caution in the minds of investors and potential investors than is healthy." A key factor in being able to make long-term investments, highlighted by the chief executives, was the ­ability to be able to predict the future price curve of carbon. This would be enabled by having the Australian ­carbon scheme linked to overseas counterparts and also companies being able to “forward purchase" permits. The federal government has already made clear that in the fixed- price period of the carbon scheme there will be no international linking, but no decision has yet been made on the purchase of future ­permits.

“Having that degree of certainty into the future in terms of a price for carbon is a critical input to what return you require in order to commit to those sorts of investments," Mr Dunne said. “So having that forward pricing curve for us is quite fundamental."

Cbus chief executive
David Atkin
said: “The key thing here is not so much the price, the entry price, but that a price is established and that we then begin the transition over time into an ETS-type scheme and then enable us to participate globally, particularly as we’re going to need to participate in international carbon schemes to get the abatement required."

Mr Dunne said he anticipated a starting price of around $20, given the price of carbon in Europe.

Despite criticism of Ms Gillard’s handling of the announcement of a carbon price framework and the lack of detail on pricing, compensation and transition to a floating price, there was widespread support for the approach taken by the government. A number highlighted the hung Parliament in shaping the approach.

“It’s curious that on the one hand there is a concern, a sort of a frustration with the politics of this nation that we want our policymakers to be involved and to deal with the key challenges that are facing us," Mr Atkin said. “And on the other hand, when our policymakers start to address these issues we start to focus in a very narrow sense on the issues."